Major Issue pertaining to customer orders backlog.
REVIEW OF THE CURRENT SITUATION
EMC – Plasti-Brack department has been facing a backlog of orders from customers. The director of materials, Don Stump apportions most of the blame on ineffective quality control department whose incompetence results in constant revision of orders to rectify defects on finished products. To rectify the defects on materials takes twice the normal average time required to manufacture the product hence it results in a lot of wastage of resources and valuable time. However, the operations production manager feels that the defects are part of the production process and the company just has to find a way of minimizing the problem as it cannot be eradicated totally. The quality control department that falls under the operations and production department is acutely understaffed and the existing staff cannot effectively supervise and implement all the control procedures that are required to sustain an acceptable margin of defects as applicable.
However, Tom Gunner from the engineering department feels that the worn out tools that are being used in the factory are partly to be blamed for the backlog of orders. The tools are inconvenient to the nature of work that’s currently being carried out in the factory especially in the Plasti brack department. More advanced tools that are currently in the market take less than half the time to produce what the current tools are producing. Besides the finished products are almost 100% free from defect. The engineer recommends that a set of new tools should be purchased by the management to reduce the backlog of orders.
The quality control manager proposes that the number of staff in his department should be doubled to increase its efficiency. Each department should have at least two members from his department who would be responsible for inspecting the finished products before they leave the factory. The major problems in quality and substandard production are as a result of ineffective inspection and assessment of bad, low or substandard plastic moulds and inserts which are mostly shipped undetected. The additional staffs requested from the quality control department are expected to reinforce the understaffed department and also improve its efficiency.
To supplement the efforts of the other departments in achieving the targeted production to avoid future backlog of orders, the downtime of one of the machines in machine Group 251, the machine should be either be grounded and replaced or another machine should be hired while the problematic machine is being repaired outside the factory’s premises to enable complete overhaul to be carried out. The rejection rates from MG 251 are very high and it should be reduced to be less than 5% from the current 20% rejection rate.
Mr. Swenson also recommends that the current molding dies are worn out and should be replaced. The dies for P90, P135 and P120B have cavities that should be closed off as they continue to generate poor quality products and instead the company should invest in new injection dies. To manufacture new dies would take a lead time of less than six weeks while their costs range between $25,000 to 30,000.
EMC Economic Order Quantity would assist the management in calculating the reorder levels required and the inventory levels to hold.
|Economic Order Quantity|
|Optimal order quantity is equal to or when|
|the annual costs equals to the annual|
|D/Qco = q/2 Ch|
|Q – quantity to be ordered for a given period|
|Co – Ordering costs/ Set up costs|
|Ch – Holding costs|
|D – Demand|
|EOQ = √2DC/Ch|
(Besanko, Dranove, Shanley, and Schaefer, 2010)
The approval of the second shift would be the last alternative incase Plasti Brack has received additional orders but the management can utilized the extra Over Time of two hours per day and the 10 hour Over Time on Saturdays for the employees until all the issues o quality improvement and the additional machine is either purchased or repaired. The use of material RP625 would reduce the need for recyclement of wastes as its very economical and it generates very little waste. Despite its cost being higher than the rest it would be economical to use.
The setup costs for the new machine together with the purchase price is more favorable than the cost of repairing the machine. The $250,000 machine that is required in the MG251 would be able to assist in reducing the backlog of orders instead of repairing the existing machine for about $100,000 and which would also need some more repairs during the year or in future. It would be very expensive to maintain the machine in case it breaks down again during the year.
Finally, it would be uneconomical for EMC to continue generating more backlogs from the client orders instead of buying new machines and tools that would be required to improve its efficiency. The constant repairs would result in more down time and possibly cancellation of orders. The management of EMC should embrace change and buy more modern machines to increase its productivity and also efficiency.
Besanko, Dranove, Shanley, and Schaefer (2010). Economics of strategy, 5th ed. Wiley.